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January 11, 2013

Top 7 Biggest Bank Fines

AdvisorOne finds that all of the biggest bank penalties have been levied in the last 10 years, mostly since the financial crisis started in 2008

Every week seems to bring news of another big bank paying a huge penalty for some misdeed or another. Some are calling it the “new normal.” Maybe it is, but any shock at the amounts paid to settle the cases seems to bother everyone but shareholders.

A little research does indeed show that all of the record-high bank penalties have been levied in the last decade, with most of them since the financial crisis started in 2008. Before that, there were some catastrophic bank failures (think of Barings Bank in 1995 and the closures in the Great Depression), but penalties on the scale of today apparently were rarely, if ever, levied.

If 2012 looked like the worst year for bank fines, 2013 started off with the promise that there is always room for bigger. Less than a week in to the year, 10 institutions, with Bank of America leading the way, agreed to pay billions to settle charges stemming from mortgage misdeeds.

Twenty billion is a staggering sum; still, we’re not sure anyone would bet that that sum will remain at the top of the list for long.

For the record, here’s AdvisorOne’s look at the Top 7 Biggest Bank Fines, from smallest to largest.

Misdeed: Charging, according to the SEC, extraordinarily high fees to big customers in 1999 and 2000.

Fallout: Little beyond the penalty, which was split evenly between the SEC and NASD. The New York Times quoted Jay Ritter, a finance professor at the University of Florida, as saying about the enforcement action: ''I would categorize it largely as a slap on the wrist.”

6. Citigroup—2003

Penalty: $400 million

Misdeed: Analysts created reports that minimized the risks in investing in certain telecom companies. This led investors to be overconfident in investing in such companies.

Fallout: Citigroup agreed to a $150 million fine, returned $150 million of ill-gotten gains, and paid $100 million to provide clients with independent research and investor education.

5. JPMorgan Chase and Credit Suisse—2012

Penalty: $417 million

Misdeed: Packaging and selling troubled mortgages to investors. As is often the case, the banks neither admitted nor denied guilt.

Fallout: So far, not much beyond the settlement, of which JPMorgan paid about $297 million. Some observers, according to The New York Times, think Credit Suisse’s CEO, Brady Dougan, could be out of a job this year. Of course, the mortgage fiasco is not cited as a reason.

4. Goldman Sachs—2010

Penalty: $550 million

Misdeed: Defrauding investors in a mortgage-backed security fund by allowing a manager to choose investments he thought would lose. The manager made money by betting against the funds.

Fallout: Investors lost more than a billion dollars. They received $250 million from the settlement. Goldman Sachs admitted no wrongdoing.

3. Bank of America, Fleet Boston—2004

Penalty: $675 million

Misdeed: The banks, which had agreed to merge when the penalty was handed down, were accused of separate actions involving the trading of funds. BofA engaged in market timing while Fleet allowed top investors to engage in secret deals not offered to ordinary investors.

Fallout: Eight members of BofA’s funds unit board resigned and the bank agreed to make other operational changes.

2. UBS—2012

Penalty: $1.5 billion

Misdeed: Involvement in the LIBOR rate-fixing scandal.

Fallout: The $1 billion assessment is more than double the amount assessed Barclays last year for its part in the LIBOR scandal. Eighteen traders have been sacked, although British politicians have said the bloodletting hasn’t reached high enough.

1. Bank of America and nine other lenders—2013

Penalty: $20 billion

Misdeed: Making bad mortgages and then selling them to the government, leaving taxpayers holding the bag when they went into default.

Fallout: BofA sold off about one-fifth of its mortgage-servicing business as part of its $11 billion agreement with Fannie Mae. The New York Times reported that one potential side effect of the deal might be a further decrease in competition in the mortgage business. That could make it more expensive and harder for consumers to get loans. Nine other lenders, including Citigroup, Wells Fargo and JPMorgan Chase, came to a settlement with federal regulators over loan modification abuses including the robo-signing of documents and poor keeping of records.